Horngren’s Financial & Managerial Accounting, The Managerial Chapters, Seventh Edition
By Tracie L. Miller-Nobles and Brenda L. Mattison
Contents:
CHAPTER 1
Introduction to Managerial Accounting 19
Why Is Managerial Accounting Important? 20
Managers’ Role in the Organization 21
Managerial Accounting Functions 22
Ethical Standards of Managers 23
How Are Costs Classified? 25
Manufacturing Companies 25
Direct and Indirect Costs 26
Manufacturing Costs 26
Prime and Conversion Costs 27
Product and Period Costs 28
How Do Manufacturing Companies Prepare Financial Statements? 30
Balance Sheet 30
Income Statement 30
Flow of Product Costs in a Manufacturing Company 31
Calculating Cost of Goods Manufactured 32
Calculating Cost of Goods Sold 34
Flow of Product Costs Through the Inventory Accounts 35
Using the Schedule of Cost of Goods Manufactured to Calculate Unit Product Cost 35
What Are Business Trends That Are Affecting Managerial Accounting? 37
Shift Toward a Service Economy 37
Global Competition 37
Time-Based Competition 37
Advances in Technology 37
Total Quality Management 38
The Triple Bottom Line 38
How Is Managerial Accounting Used in Service and Merchandising Companies? 39
Calculating Cost per Service 39
Calculating Cost per Item 40
Review 40
Assess Your Progress 45
Critical Thinking 64
CHAPTER 2
How Do Manufacturing Companies Use Job Order and Process Costing Systems? 68
Job Order Costing 68
Process Costing 68
How Do Materials and Labor Costs Flow Through the Job Order Costing System? 70
Materials 71
Labor 75
How Do Overhead Costs Flow Through the Job Order Costing System? 77
Before the Period—Calculating the Predetermined Overhead Allocation Rate 79
During the Period—Allocating Overhead 79
What Happens When Products Are Completed and Sold? 81
Transferring Costs to Finished Goods Inventory 82
Transferring Costs to Cost of Goods Sold 82
How Is the Manufacturing Overhead Account Adjusted? 83
At the End of the Period—Adjusting for Overallocated and Underallocated Overhead 83
How Are Cost of Goods Manufactured and Cost of Goods Sold Calculated? 86
Summary of Journal Entries 86
Cost of Goods Manufactured and Cost of Goods Sold 88
How Do Service Companies Use a Job Order Costing System? 90
Review 92
Assess Your Progress 100
Critical Thinking 120
CHAPTER 3
Process Costing 123
How Do Costs Flow Through a Process Costing System? 124
Job Order Costing Versus Process Costing 124
Flow of Costs Through a Process Costing System 125
What Are Equivalent Units of Production, and How Are They Calculated? 128
How Is a Production Cost Report Prepared for the First Department? 130
Production Cost Report—First Process—Assembly Department 131
How Is a Production Cost Report Prepared for Subsequent Departments? 137
Production Cost Report—Second Process—Cutting Department 137
What Journal Entries Are Required in a Process Costing System? 144
Transaction 1—Materials Purchased 144
Transaction 2—Materials Used 145
Transaction 3—Labor Costs Incurred 145
Transaction 4—Actual Overhead Costs Incurred 145
Transaction 5—Overhead Allocation 146
Transaction 6—Transferring Costs from the Assembly Department to the Cutting Department 146
Transaction 7—Transferring Costs from the Cutting Department to Finished Goods Inventory 146
Transaction 8—Puzzles Sold and Transferring Costs from Finished
Goods Inventory to Cost of Goods Sold 146
Transaction 9—Adjust Manufacturing Overhead 147
How Can the Production Cost Report Be Used to Make Decisions? 148
APPENDIX 3A: Process Costing: First-In, First-Out Method 150
How Is a Production Cost Report Prepared Using the FIFO Method? 150
Step 1: Summarize the Flow of Physical Units 150
Step 2: Compute Output in Terms of Equivalent Units of Production 152
Step 3: Compute the Cost per Equivalent Unit of Production 154
Step 4: Assign Costs to Units Completed and Units in Process 155
Comparison of Weighted-Average and FIFO Methods 158
Review 159
Assess Your Progress 167
Critical Thinking 187
CHAPTER 4
Lean Management Systems: Activity-Based, Just-in-Time, and Quality Management Systems 191
How Do Companies Assign and Allocate Costs? 192
Single Plantwide Rate 194
Multiple Department Rates 196
Comparing Single Plantwide Rate to Multiple Department Rates 198
How Is an Activity-Based Costing System Developed? 199
Step 1: Identify Activities and Estimate Their Total Indirect Costs 200
Step 2: Identify the Allocation Base for Each Activity and Estimate the Total Quantity of Each Allocation Base 201
Step 3: Compute the Predetermined Overhead Allocation Rate for Each Activity 202
Step 4: Allocate Indirect Costs to the Cost Object 203
Traditional Costing Systems Compared with ABC Systems 204
How Can Companies Use Activity-Based Management to Make Decisions? 205
Pricing and Product Mix Decisions 205
Cost Management Decisions 206
How Can Activity-Based Management Be Used in Service Companies? 208
How Do Just-in-Time Management Systems Work? 211
Just-in-Time Management Systems 211
Just-in-Time Costing 213
Recording Transactions in JIT 213
How Do Companies Manage Quality Using a Quality Management System? 216
Quality Management Systems 217
The Four Types of Quality Costs 217
Quality Improvement Programs 218
Review 220
Assess Your Progress 226
Critical Thinking 246
CHAPTER 5
Cost-Volume-Profit Analysis 251
How Do Costs Behave When There Is a Change in Volume? 252
Variable Costs 252
Fixed Costs 253
Mixed Costs 255
What Is Contribution Margin, and How Is It Used to Compute Operating Income? 259
Contribution Margin 259
Unit Contribution Margin 259
Contribution Margin Ratio 260
Contribution Margin Income Statement 260
How Is Cost-Volume-Profit (CVP) Analysis Used for Profit Planning? 261
Assumptions 261
Breakeven Point—Three Approaches 261
Target Profit 263
CVP Graph—A Graphic Portrayal 265
How Is CVP Analysis Used for Sensitivity Analysis? 266
Changes in the Sales Price 267
Changes in Variable Costs 267
Changes in Fixed Costs 268
Using Sensitivity Analysis 269
Cost Behavior Versus Management Behavior 269
What Are Some Other Ways CVP Analysis Can Be Used? 271
Margin of Safety 271
Operating Leverage 272
Sales Mix 274
Review 277
Assess Your Progress 284
Critical Thinking 301
Comprehensive Problem for Chapters M:1–M:5 301
CHAPTER 6
Variable Costing 307
How Does Variable Costing Differ from Absorption Costing? 308
Absorption Costing 308
Variable Costing 308
Comparison of Unit Product Costs 309
How Does Operating Income Differ Between Variable Costing and Absorption Costing? 310
Units Produced Equal Units Sold 311
Units Produced Are More Than Units Sold 312
Units Produced Are Less Than Units Sold 314
Summary 315
How Can Variable Costing Be Used for Decision Making in a Manufacturing Company? 317
Setting Sales Prices 318
Controlling Costs 318
Planning Production 318
Analyzing Profitability 318
Analyzing Contribution Margin 321
Summary 322
How Can Variable Costing Be Used for Decision Making in a Service Company? 323
Operating Income 323
Profitability Analysis 324
Contribution Margin Analysis 325
Review 327
Assess Your Progress 331
Critical Thinking 344
CHAPTER 7
Master Budgets 349
Why Do Managers Use Budgets? 350
Budgeting Objectives 350
Budgeting Benefits 351
Budgeting Procedures 352
Budgeting and Human Behavior 352
What Are the Different Types of Budgets? 353
Strategic and Operational Budgets 353
Static and Flexible Budgets 354
Master Budgets 355
How Are Operating Budgets Prepared for a Manufacturing Company? 356
Sales Budget 357
Production Budget 358
Direct Materials Budget 359
Direct Labor Budget 360
Manufacturing Overhead Budget 361
Cost of Goods Sold Budget 362
Selling and Administrative Expense Budget 363
How Are Financial Budgets Prepared for a Manufacturing Company? 364
Capital Expenditures Budget 364
Cash Budget 364
Budgeted Income Statement 372
Budgeted Balance Sheet 373
How Are Operating Budgets Prepared for a Merchandising Company? 375
Sales Budget 375
Inventory, Purchases, and Cost of Goods Sold Budget 377
Selling and Administrative Expense Budget 377
How Are Financial Budgets Prepared for a Merchandising Company? 378
Capital Expenditures Budget 378
Cash Budget 379
Budgeted Income Statement 383
Budgeted Balance Sheet 384
How Can Information Technology Be Used in the Budgeting Process? 386
Sensitivity Analysis 386
Budgeting Software 386
Review 387
Assess Your Progress 394
Critical Thinking 427
CHAPTER 8
Flexible Budgets and Standard Cost Systems 431
How Do Managers Use Budgets to Control Business Activities? 433
Performance Reports Using Static Budgets 433
Performance Reports Using Flexible Budgets 434
Why Do Managers Use a Standard Cost System to Control
Business Activities? 438
Setting Standards 439
Standard Cost System Benefits 441
Variance Analysis for Product Costs 441
How Are Standard Costs Used to Determine Direct
Materials and Direct Labor Variances? 443
Direct Materials Variances 444
Direct Labor Variances 447
How Are Standard Costs Used to Determine Manufacturing
Overhead Variances? 449
Allocating Overhead in a Standard Cost System 449
Variable Overhead Variances 450
Fixed Overhead Variances 451
What Is the Relationship Among the Product Cost
Variances, and Who Is Responsible for Them? 454
Variance Relationships 455
Variance Responsibilities 456
How Do Journal Entries Differ in a Standard Cost
System? 457
Journal Entries 457
Standard Cost Income Statement 461
Review 463
Assess Your Progress 471
Critical Thinking 486
CHAPTER 9
Responsibility Accounting and Performance
Evaluation 491
Why Do Decentralized Companies Need Responsibility
Accounting? 492
Advantages of Decentralization 492
Disadvantages of Decentralization 493
Responsibility Accounting 494
What Is a Performance Evaluation System, and How Is It
Used? 497
Goals of Performance Evaluation Systems 497
Limitations of Financial Performance Measurement 498
The Balanced Scorecard 498
How Do Companies Use Responsibility Accounting to
Evaluate Performance in Cost, Revenue, and Profit
Centers? 501
Controllable Versus Noncontrollable Costs 501
Responsibility Reports 502
How Does Performance Evaluation in Investment Centers
Differ from Other Centers? 506
Return on Investment (ROI) 507
Residual Income (RI) 510
Limitations of Financial Performance Measures 511
How Do Transfer Prices Affect Decentralized
Companies? 513
Objectives in Setting Transfer Prices 513
Setting Transfer Prices 514
Review 516
Assess Your Progress 522
Critical Thinking 534
Comprehensive Problem for Chapters M:7–M:9 534
CHAPTER 10
Short-Term Business Decisions 541
How Is Relevant Information Used to Make Short-Term
Decisions? 542
Relevant Information 542
Relevant Nonfinancial Information 543
Differential Analysis 544
How Does Pricing Affect Short-Term Decisions? 545
Setting Regular Prices 545
Special Pricing 549
How Do Managers Decide Which Products to Produce and
Sell? 552
Dropping Unprofitable Products and Segments 552
Product Mix 556
Sales Mix 559
How Do Managers Make Outsourcing and Processing
Further Decisions? 560
Outsourcing 560
Sell or Process Further 564
Review 567
Assess Your Progress 574
Critical Thinking 590
CHAPTER 11
Capital Investment Decisions 593
What Is Capital Budgeting? 594
The Capital Budgeting Process 594
Focus on Cash Flows 596
How Do the Payback and Accounting Rate of Return
Methods Work? 598
Payback 598
Accounting Rate of Return (ARR) 601
What Is the Time Value of Money? 604
Time Value of Money Concepts 605
Present Value of a Lump Sum 607
Present Value of an Annuity 608
Present Value Examples 608
Future Value of a Lump Sum 610
Future Value of an Annuity 610
How Do Discounted Cash Flow Methods
Work? 611
Net Present Value (NPV) 611
Internal Rate of Return (IRR) 616
Comparing Capital Investment Analysis Methods 619
Sensitivity Analysis 620
Capital Rationing 623
Review 624
Assess Your Progress 630
Critical Thinking 643
Comprehensive Problem for Chapters M:10 and M:11 643
APPENDIX A—Present Value Tables and Future Value Tables 649
APPENDIX B—The Statement of Cash Flows 653
APPENDIX C—Financial Statement Analysis 721
GLOSSARY 779
INDEX 785
PHOTO CREDITS 797